What is Professional Tax – Meaning, Rates & Compliance

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professional tax registration

Professional tax is not just a tax levied on professionals, but on everyone. Whether you’re a white-collared worker, a trader, or a businessperson, or a freelancer you are required to pay professional tax to the Government of India.

However, unlike other taxes, professional tax on income is levied by the state government. Do note that not all states in the country levive a professional tax. The respective state government is also empowered to make laws with respect to professional tax though being a tax on income under Article 276 of the Constitution of India which deals with tax on professions, trades, callings and employment.

All the states do follow a slab system based on the income to levy professional tax. Further, Article 276 of the Constitution which empowers the state government to levy professional tax also has provided for a maximum cap of ₹2,500 beyond which professional tax cannot be charged on any person.

For example, let us look at the professional tax paid in Karnataka and Andhra Pradesh

  • Professional tax rate slabs in Karnataka 
Monthly salary/wage upto ₹15,000 NIL
Monthly salary/wage > ₹15,000 ₹200 per month
  • Professional tax rate slabs in Andhra Pradesh 
Monthly salary/wage upto ₹15,000 NIL
Monthly salary/wage between ₹15,001 – Rs 20,000 ₹150 per month
Monthly salary/wage > ₹20,000 ₹200 per month

 

Professional tax is collected by the state’s commercial tax department. Each state commercial department which ultimately reaches the fund of the municipality. The individual paying professional tax can be a salaried employee, freelancer, businessperson, trader, etc. 

In the case of employees, the employer cuts the tax and pays it to the government. In addition, an employer (corporates, partnership firms, sole proprietorship etc) also being a person carrying on trade/profession is also required to pay professional tax on his trade/profession again subject to the monetary threshold if any provided by the respective State’s legislation. 

Failure to pay professional tax results in the individual or company paying a penalty to the state.

There are also penalties for not making the payment within the due date and also failing to file the return within the specified due date. 

For example: In the state of Maharashtra ₹5/day is imposed as a penalty for delay in registration, Interest at 1.25% per month of delay in payment, a penalty of 10% of the amount of tax in case of delay/non payment of professional tax, ₹1000 – Rs 2000 penalty for delay in filing the return.

Professional Tax Registration

All salaried individuals are subject to professional tax, which is enforced by the state government. All working professionals, such as chartered accountants, lawyers, and doctors, are subject to professional tax. It is assessed based on a person’s occupation, trade, or profession. All states have different tax rates, however the highest amount that can be levied as professional tax is Rs.2,500 per year.

In India, a professional tax is imposed on all types of trades and professions. Every employee of a private company operating in India is required to pay it. Professional tax registration is the responsibility of every business owner, who is also responsible for professional tax deduction and payment.

Know more: professional tax payment online

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